The leader in web search Google Inc. agreed to acquire top video entertainment site YouTube Inc. for $1.65 billion in stock, bringing a purse-proud new level of consumer-generated media sites.
Google is the first to value one of the new crop of user-participation Web sites at more than $1 billion. This deal combines two of the most popular Internet brands: Google, synonymous with Web search and rapid innovation, and YouTube, a Silicon Valley start-up that has initiated the video-sharing boom.
In anticipation of the acquisition, investors pushed shares of Google up $8.50, or 2 percent, on Nasdaq on Monday to a closing price of $429.00 — a level not seen since late April. In extended-hours trade following the announcement of the deal, Google stock dipped to $427.63.
For Google, the acquisition of YouTube would thrust the Web search leader quickly into the emerging market for video advertising, where it has only a tiny foothold compared with Yahoo Inc. and various Web start-ups, analysts said.
“YouTube is phenomenally valuable in terms of traffic and in the Internet sector this is important just like location is important in real estate,” said Sasa Zorovic, an analyst at Oppenheimer.
“YouTube has almost 50 percent of the online video market and combined with Google Video, they’ll have close to 60 percent of traffic,” Zorovic said, adding the $1.65 billion price tag was in line with valuations for Internet businesses.
YouTube was founded in February 2005 as one of dozens of Internet video start-ups. It has exploded in popularity since last November by letting users share short clips of home videos and programming copied from television.
YouTube has been the subject of acquisition speculation for much of this year. Potential buyers included Internet rivals of Google such as Yahoo, as well as media companies like News Corp., owner of MySpace.com, and MTV owner Viacom Inc.
“This is a very good move for Google, strategically, as it opens up to them the possibility to grow in one Internet area where they were not very big — that is video,” said Steve Neimeth, portfolio manager for AIG SunAmerica Asset Management.
YouTube says it serves about 100 million videos daily and has drawn scrutiny from major media companies for copyrighted material appearing on its pages without their consent.